Bankruptcy offers certain debtors the opportunity to file for debt relief and experience a fresh economic start. Debtors that file for bankruptcy will either have their debt discharged through a Chapter 7 bankruptcy or reorganized through a Chapter 13. Those who wish to reorganize their debt may do so by filing a bankruptcy through a Chapter 13 or through a Chapter 11. Filing for bankruptcy requires that the debtor understand what type of chapter applies to their case. In some cases, a debtor with enough disposable income may only be capable of filing a Chapter 13 or a Chapter 11. To make sure that you are filing under the correct chapter and to learn of the benefits of each chapter in bankruptcy, you will want to speak with a local attorney.
Bankruptcy is a common procedure used by many Americans to address debt that cannot be paid back. In fact, the United States Courts reports that a total of 790,830 bankruptcies were filed in 2017 by both business and non-business individuals. Most of these cases, about 486,542 cases, were filed through a Chapter 7 which means that those filing are living under the average household wage. The vast majority of Americans who are filing for bankruptcy are doing so because they have accumulated debt that is beyond their ability to repay. Bankruptcy provides a variety of benefits for debtors all over the United States.
When debtors suffer an injury that puts them out of work or when debtors are unexpectedly let go of a job, it is very easy to fall behind on payments. Working individuals will often experience an economic high allowing them to take out loans and accept credit lines. Unfortunately, when accidents happen or things do not go as planned, it is hard to maintain the same lifestyle. Paying off a mortgage and/or car loan quickly becomes complicated when facing economic hardships. Debtors that are far behind on their payments will receive phone calls, emails, and letters from debt collectors and may even be facing a lawsuit, repossession, or foreclosure.
Debtors that are facing a lawsuit, repossession, or foreclosure will often consider bankruptcy to buy themselves time. Bankruptcy stops foreclosure, car repossessions, legal actions such as wage garnishments, and it stops debt collecting activities such as the daily phone calls. A debt collector is able to buy themselves some time by filing a Chapter 7 or a Chapter 13 which are the most common procedures for individuals that are filing for bankruptcy.
Benefits of Chapter 7
A Chapter 7 bankruptcy as mentioned is the most common way to file for bankruptcy. It allows debtors protections from debt collecting activities once the automatic stay is in place. This chapter requires that debtors pass a means test where they provide statements of their income and of their financial affairs. If they qualify, usually meaning they earn less than the average household, they will be able to discharge their debt and never have to worry about it again.
Through a Chapter 7, individuals will transfer their non-exempt property to a trustee. A trustee in a bankruptcy case is the person in charge of selling the debtor's property and then using the proceeds to pay off any creditor. If at the end of the bankruptcy the debtor's property (home, car, boat, etc) pay off all of the debt and court fees, the remaining portion of the sale will be returned to the debtor. However, in some cases debtors may not receive anything an may be required to pay a deficiency on a loan.
Credit Cards and Medical Bills Discharge
A Chapter 7 is appropriate for individuals that have a substantial amount of (dischargeable) debt arising from credit cards or medical bills. Since Chapter 7 clears all dischargeable debt, most individuals that file through this Chapter are doing so to have a large portion of their debt cleared. Debtors that no longer have the ability to pay back a credit card either because they were dismissed or because they have suffered an extreme injury may have their credit card debts discharged. In addition, individuals will often consider a bankruptcy after they find that they are responsible for a hefty medical bill. When insurance companies do not cover the complete costs of the medical treatment debtors will find that they are responsible for a medical treatment which can easily range from $1,000 to $10,000. Dischargeable debt under Chapter 7 includes debts from credit cards and medical bills which is why many Americans file a Chapter 7 more commonly than a Chapter 13.
Another benefit of filing through a Chapter 7 is that you get to keep some of your property. In the state of California, you may keep most property that falls under a certain value. For instance, you may be allowed to keep a car that is worth less than $4,800 and may keep up to $7,175 in tools or professional books. The bankruptcy exemption laws in Section 703 and 704 in California allow debtors to retain more property than those who are filing for federal exemptions.
Debtors that are filing for Chapter 7 benefit the most through this chapter if they do not own much property. They will find that all of their dischargeable debt is wiped out and they will be able to keep most if not all of their property. To make sure you will benefit from a Chapter 7, you are encouraged to speak with a local attorney. A local attorney will help you determine what type of bankruptcy will suit you best. Not everyone wants to give up their property especially individuals that have worked hard to own what they have, make sure you have done your research before filing a Chapter 7.
Benefits of Chapter 13
As mentioned earlier, a Chapter 7 is not for everyone. In most cases, you do not want to consider a Chapter 7 if you are a property owner. A property owner is an owner of a vehicle, house, condo, boat, and other estates. The reasons that such a person should not consider a Chapter 7 is that in most cases they have the ability to keep all of their property by establishing a debt settlement program. A Chapter 13 allows earning individuals to keep their property and create a repayment plan. Depending on the amount that they owe and the types of loans, the debtor will either be required to uphold a 3 or 5-year repayment program.
One of the biggest benefits of Chapter 13 is that the debtor is allowed to create a debt settlement program that works around their earning capabilities. A debt settlement takes place when a debtor submits paperwork for a Chapter 13 bankruptcy. Upon filing a Chapter 13, the debtor will be required to work with a trustee usually an attorney, to create a debt settlement program that is agreeable to all parties involved. The trustee is usually in charge of contacting all creditors and notifying them of the debtor's bankruptcy. In addition, they are required to distribute payments throughout the life of the repayment program.
A Chapter 13 bankruptcy allows debtors to discharge a portion of their debt through a debt settlement program. Debtors that do not wish to lose their property, but who want to benefit from a bankruptcy should consider a Chapter 13. Through this chapter, the debtor is capable of resettling their debt through a 3 to 5 repayment program. At the end of the repayment program, certain debt that is not paid back is discharged.
Small business owners (sole proprietors) will sometimes accumulate debt that cannot be paid back in the agreed upon time. Small business owners who own an operating business may fall behind on their payments when they bite off more than they can chew. When the sole proprietor is falling behind on payments, they may find lawsuits that aim to take control of their property and/or business. Business owners that wish to prevent their business from being liquidated or repossessed will highly benefit from a Chapter 13.
Through a Chapter 13, business owners may keep all of their business essentials so that they may continue running their business. A debt settlement program allows business owners to stop debt collecting activities while maintaining full control of their business. If your business is producing money you may want to establish a repayment program that works around your businesses potentials.
One of the biggest reasons that individuals consider bankruptcy is the automatic stay law under Section 362 of the Title 11. The automatic stay law prevents debt collectors from pursuing a debt after the debtor has filed a bankruptcy. The courts understand that a bankruptcy is a clear sign of economic instability which is why they provide certain protections while the debtor is going through a bankruptcy procedure. Under the automatic stay laws once you have submitted the required documents you will be protected immediately from debt collectors. As mentioned earlier, the automatic stay prevents debt collectors from pursuing a lawsuit, wage garnishment, foreclosure, repossession, or any other form of debt collection.
The best thing about the automatic stay is that you can receive the protections without having to file a complete bankruptcy petition. Bankruptcy requires that the debtor fill out documents that pertain to their economic affairs and a list of their creditors and the amount owed. In some cases, debtors do not have the time to complete a bankruptcy. Debtors that are under time restrictions may submit the following basic documents to rush their bankruptcy case and obtain protection from the automatic stay:
- The first three pages of the Form B-1
- The Form B-21 Statement of Social Security Number
- Proof of Credit Counseling
- Creditor contact information
If you are seeking immediate automatic stay protection it is crucial to contact a bankruptcy attorney that can help you expedite the procedure. In addition, you will want to receive credit counseling either through a phone call, in person, or through an online program. The credit counseling is the most time-consuming aspect of an emergency bankruptcy so make sure you take care of this as soon as possible.
The automatic stay is one of the biggest reasons that a person may consider a bankruptcy. However, if your creditor can prove that you are filing for bankruptcy for fraudulent reasons, the automatic stay may be lifted. In addition, if you are filing for a Chapter 13 and the creditor is able to prove that they will never be paid, they may petition to lift the automatic stay especially if you have estate or property that can be sold off to pay them off. To make sure that you are protected by the bankruptcy laws, you will want to make sure you are filing through the correct chapter.
Aside from the automatic stay laws, a debtor may consider a bankruptcy to have most if not all of their debt discharged. Through a Chapter 7, all dischargeable debt (medical bills, credit loans, and private loans) is cleared and can never be reclaimed by a creditor. Credit that is discharged through a Chapter 7 is credit that is forever cleared and can never be pursued even when you have the means to pay back the debt.
In Chapter 13, a portion of the debt is discharged after the repayment program. In the same fashion debt discharged through a Chapter 13 may not be pursued after completion of the repayment program. Discharging debt is a common reason that an individual may consider a bankruptcy. In addition, the type of debt will also determine what type of bankruptcy works best for you.
A bankruptcy is a procedure that can easily be complicated especially in consideration of any businesses, properties or other estates. To ensure that you receive an appropriate analysis of your case you will want to speak with a local bankruptcy attorney. To receive trustworthy guidance and representation, you may contact the Bankruptcy Attorney at 424-285-5525.